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When “Whatever It Takes” Isn’t Enough

Summary:
The US Federal Reserve's surprise weekend announcement of a large interest-rate cut, renewed quantitative easing, and other expansionary measures is a welcome response to the COVID-19 pandemic. But as markets were quick to note, monetary policy cannot save us from this crisis. NEW YORK – When interpreting the US Federal Reserve’s weekend announcement of new measures to mitigate the fallout from the COVID-19 pandemic, it is important not to confuse motion with action. The Three Essential Questions about COVID-19 Ina Fassbender/AFP via Getty Images Piketty's Latest Charge PS OnPoint

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The US Federal Reserve's surprise weekend announcement of a large interest-rate cut, renewed quantitative easing, and other expansionary measures is a welcome response to the COVID-19 pandemic. But as markets were quick to note, monetary policy cannot save us from this crisis.

NEW YORK – When interpreting the US Federal Reserve’s weekend announcement of new measures to mitigate the fallout from the COVID-19 pandemic, it is important not to confuse motion with action.

Arguably, the Fed’s latest move to ease monetary policy is unprecedented, not least because it was announced on a Sunday afternoon. The Fed cut the federal funds rate by 100 basis points (to the 0-0.25% range), which will likely translate into a meaningful reduction in the marginal cost of corporate and household borrowing from banks. The Fed is also reactivating quantitative easing (QE). In the coming months, it will increase its holdings of Treasury securities by at least $500 billion and...

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